Can someone rent his own IP??

Hello, everyone. My friend has his PPOR and one IP. He'd like to buy more IP(s). However, ability of servicing more loan becomes a bottle neck. I was suggesting him to moving out from his PPOR and rent it out (since he only owes $180K on a $380K house, this PPOR will turn into a cf+ IP. This will help him to get more loans. And according to the 6 yrs rule, he’ll still be able to claim this house as his PPOR later on).

However, he needs to rent somewhere to live. Is that possible for him to rent his own IP and still treating the property as an IP (rather than PPOR) for tax purpose?? (providing he'll pay a market rate - as much as his current tenant pay)? Is there any tax law obligation involved here??

The reason for such a thought is that his current tenant is not-so-good, and he has borrowed about 105% on his IP, if he can rent it and lives there, he’ll be able to look after the property while still entitle to the tax benefit on this negative geared IP.

Any feedbacks are appreciated!! (So much to learn here!! Really enjoyed it!!)
 
I'msure I remember a conversaton about this with conversation leaning towards trust structures or something otherwise the verdict was no.
 
I'msure I remember a conversaton about this with conversation leaning towards trust structures or something otherwise the verdict was no.

Yes, Jaycee, I have read the thread of renting your own house under a trust/company... That's a good one.
 
You can't conduct a transaction with yourself. So if it is in his name then he can't rent it, but if in a spouse of trust or company then it would be possible.

Maybe he could rent it to a friend and "live" with his parents?
 
Bear in mind Part 1VA of the Income Tax Assessment Act - renting a residence from your trust or company is likely to be seen as being for tax purposes. I think there were a couple of cases in the 80s.

Also unless the trust or company has other income the losses stay within the entity
 
You can't conduct a transaction with yourself. So if it is in his name then he can't rent it, but if in a spouse of trust or company then it would be possible.

Maybe he could rent it to a friend and "live" with his parents?

:D That's what i thought. As his dating progress, his girlfriend should be able to rent his IP for him
 
What you can do and a lot of people in docklands ( as there still trying to recoup there overpriced purchasers ) are doing is they are renting the place next door and that person is renting there's. This allows for each person to claim negative gearing and depreciation. Quite a smart idea when I was first told about it I thought.

Jezza
 
Applying Private Ruling in the case of a HDT

Not in all cases, have a look at this ruling

Read this with great interest. This is the most definitive information I have seen on the topic of renting from a trust. I have a property in a HDT that meets all of the crietria of this ruling, except that rather than the Trust taking out a loan to buy the property, I took out a loan to buy units in the Trust, and the Trust used that cash to buy the property. We've never lived in the property and my loan is/has been tax deductible to date.

My most recent discussion with my accountant (around a year ago) confirmed that I could rent the property from the trust with normal deductions on costs/interest applying, probably for a short time (1-2) years, provided I had the provable intention of it being a temporary arrangement only.

In the information on this ruling that is provided, I don't see any timeline restriction? Interested if any others have information on a HDT example of this, and/or on the time frame point above?

I thought the option to do this was dead, but perhaps not.
 
As far as I have heard, this may be classed as Tax evasion and the ATO may want to have a chat with them if this takes place and is found to be so.

Cheers

Mick
 
What you can do and a lot of people in docklands ( as there still trying to recoup there overpriced purchasers ) are doing is they are renting the place next door and that person is renting there's. This allows for each person to claim negative gearing and depreciation. Quite a smart idea when I was first told about it I thought.

Jezza

I can state with a strong degree of confidence that the ATO would have an issue with this scenario. Think about it this way: what logical explanation could be given that would convince the ATO that this arrangement was not primarily for the purpose of gaining a tax advantage?

Compare and contrast with the tax ruling mentioned elsewhere in this thread whereby the investment property was previously leased to an arms-length third party, the personal circumstances of the investor changed and (and this is important) the taxable income position of the investor is not changed by them renting to "themselves" at commercial rates.
 
I can state with a strong degree of confidence that the ATO would have an issue with this scenario. Think about it this way: what logical explanation could be given that would convince the ATO that this arrangement was not primarily for the purpose of gaining a tax advantage?

Compare and contrast with the tax ruling mentioned elsewhere in this thread whereby the investment property was previously leased to an arms-length third party, the personal circumstances of the investor changed and (and this is important) the taxable income position of the investor is not changed by them renting to "themselves" at commercial rates.

Token Funder, thanks for the post. I understand your logic of how the ATO might be expected to view these, but genuine question, what are your views on this specific ruling? Are you saying that the ATO, despite the ruling, will not allow the deductions for that investor? Keen to hear your view as I'd had the impression that the ruling meant in this specific case (and that's the potential catch for others ofcourse) that it was allowed. The ruling did surprise me as I'd also thought from prior reading on the forum that this was a no go.

Thanks,
 
What you can do and a lot of people in docklands ( as there still trying to recoup there overpriced purchasers ) are doing is they are renting the place next door and that person is renting there's. This allows for each person to claim negative gearing and depreciation. Quite a smart idea when I was first told about it I thought.

Jezza

Noel WHITTAKER has been saying this for ages, its the way our tax system works :)

You can't conduct a transaction with yourself. So if it is in his name then he can't rent it, but if in a spouse of trust or company then it would be possible.

Maybe he could rent it to a friend and "live" with his parents?

Better to be upfront and rent through a Trust or Company structure than rent to a friend and live with your parents then? Though I guess you will actually spend a lot of time at both places; firstly visiting your friend as well as checking up on your property (how many inspections is too many?) and secondly visiting your parents to pick up your mail (and sleep/eat/change clothes).

Read this with great interest. This is the most definitive information I have seen on the topic of renting from a trust. I have a property in a HDT that meets all of the crietria of this ruling, except that rather than the Trust taking out a loan to buy the property, I took out a loan to buy units in the Trust, and the Trust used that cash to buy the property. We've never lived in the property and my loan is/has been tax deductible to date.

My most recent discussion with my accountant (around a year ago) confirmed that I could rent the property from the trust with normal deductions on costs/interest applying, probably for a short time (1-2) years, provided I had the provable intention of it being a temporary arrangement only.
In the information on this ruling that is provided, I don't see any timeline restriction? Interested if any others have information on a HDT example of this, and/or on the time frame point above?

I thought the option to do this was dead, but perhaps not.

Just curious, why the short time frame?
 
Their advice was that it had to be a temporary arrangement and therefore short timeframe was important. I suspect it came to the point that a long-term arrangement may be construed as being for taxation purposes. But I don't see that in the private ruling shown in this thread.
 
Token Funder, thanks for the post. I understand your logic of how the ATO might be expected to view these, but genuine question, what are your views on this specific ruling? Are you saying that the ATO, despite the ruling, will not allow the deductions for that investor? Keen to hear your view as I'd had the impression that the ruling meant in this specific case (and that's the potential catch for others ofcourse) that it was allowed. The ruling did surprise me as I'd also thought from prior reading on the forum that this was a no go.

Thanks,

No, quite the opposite. The ruling relates to the specific fact scenario outlined in the document and you can see why the ATO came to the finding they did (see my previous post). So that particular tax payer is sorted.

My point is that it is a big mistake to take a very specific scenario like that and extend it to transparent avoidance activity like swapping with the bloke next door.
 
Thanks, Token Funder, think I'm going to talk to my accountant about the process for seeking a ruling (nothing ventured etc.). Our circumstances seem (at least superficially) similar to that case.
 
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